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Tax Debt Warehousing and Interest Suspension Arrangements

On 7 May 2020, Revenue issued a press release with updated information on the suspension of interest and further details on the tax debt warehousing arrangement that was announced by the Government on 2 May.

Interest Suspension

The charging of interest on late payments is suspended automatically for SMEs with annual turnover of less than €3 million (i.e. businesses which are managed by Revenue’s Business Division) for:

  • May and June PAYE (Employers) liabilities normally due in June and July, respectively.
  • May /June VAT liabilities, normally due in July.

Businesses managed by the Large Corporates Division (LCD) and the Medium Enterprises Division (MED) can make a request for interest suspension relating to the liabilities above. Such businesses, who are experiencing temporary cash flow or trading difficulties, should contact the Collector-General’s office through MyEnquiries or alternatively, contact their LCD or MED branch contacts.

In addition, to the earlier announcements of suspension of interest on late payments of January/February and March/April VAT, as well as February, March, and April PAYE (Employers) liabilities, the total deferred under these arrangements during March and April exceeds €1,260 million. Revenue has again stressed the importance of continuing to file tax returns, even where full or partial payment is not immediately possible. Tax returns should be filed on a ‘best estimates’ basis, where key personnel are unavailable to compute the tax returns due to the COVID-19 virus. Any subsequent amendments can be completed on a self-correction basis, without penalty.

Tax Debt Warehousing

On 2 May 2020, the Government announced that it will legislate to provide that Revenue will warehouse deferred VAT and payroll taxes debts associated with the COVID-19 crisis. Pending the enactment of the necessary legislation, Revenue will operate the scheme on an administrative basis. In effect, the amounts deferred from March will be warehoused.

Under the scheme, VAT and PAYE (Employer) tax debts deferred while a business is unable to trade or was subject to restricted trading due to the COVID-19 related health restrictions, as well as debts for an additional two months after the business resumes “normal” trading, will be ringfenced by Revenue.

A Revenue press release and information note issued on 7 May provide further details on the arrangement, which will have three periods.

  • Period 1: COVID Restricted Trading Period – The restricted period is the period during which the business was and is unable to trade or was and is trading at a significantly reduced level, due to the COVID-19 related restrictions and two months after the business re-commences “normal” trading. All relevant returns for the restricted trading phase will need to be filed so that the debt can be quantified. If a “best estimate” return of liability has been made for any period, the correct return will have to be filed before the end of Period 1 to ensure the debt benefits from the warehousing. No interest will apply to these taxes for this period and debt enforcement will be suspended. Period 1 may vary from sector to sector and business to business, depending on when Government restrictions are relaxed, in line with the roadmap for re-opening society and business, as announced on 1 May 2020.
  • Period 2: Zero Interest Phase – Following a resumption of “normal” trading, the outstanding VAT and PAYE (Employer) tax debts will be warehoused for 12 months during which there will be no collection of this debt by Revenue and no interest will be charged. However, businesses will be expected to pay current liabilities as they arise during this 12-month period.
  • Period 3: Reduced Interest Phase – At the end of the “warehoused” 12-month period, a reduced interest rate of 3% will apply on the repayment of such warehoused tax debt until it is fully paid.

Tax Clearance will not be affected by a business availing of tax debt warehousing under this arrangement. In addition, refunds and repayments of tax which arise will also be paid, notwithstanding that the business owes VAT and PAYE (Employer) liabilities that have been warehoused. A business can choose to offset a refund/repayment against the warehoused liabilities if it wishes.

Revenue also confirmed in a press release on 2 May that the timeframe allowed to pay the “warehoused” debt will be flexible and determined by the ability of the business to pay both COVID-19 related debts, as well as meeting its ongoing tax liabilities as they arise in the normal course of businesses.

Revenue published Preliminary Statistics on COVID-19 Debt Warehousing on 4 June which are available here.

The full details of the arrangements for debt warehousing were published in legislation on 24 July – Financial Provisions (Covid-19) (No.2) Bill 2020 

A Revenue press release and Information booklet issued on 6 August provide further details on the warehousing of tax debts associated with COVID-19 and the reduced interest rate on other tax debts.

In a press statement  issued on 17 September, Institute President, Sandra Clarke, urged businesses to act now to save on interest charged on overdue tax.